Are we in a small minority?

pawlala · 4 November 2012 at 10:36AM

Another article this time over at Telegraph, advocating savings/ISA before overpaying. But they don't make any mention of looking at the interest rate comparisons before making that choice.

Should I pay a lump sum off my mortgage to reduce monthly repayments or spend it on home improvements?

Question: I have a few thousand pounds saved up. Should I pay a lump sum off my mortgage to help reduce the monthly repayments or should I spend it on improvements to increase my property's value?

Answer: In these uncertain times, if you’ve only got a few thousand pounds, your safest option is to keep your savings for the proverbial rainy day. Once you have paid off a lump sum from your mortgage, you cannot then take this money out again should you need it (unless you have a flexible mortgage which allows withdrawals). Also bear in mind that home improvements do not always increase a property’s value and even then you may only get back 50pc of what you spend. Adding space – through a loft conversion or extension – if done well and in keeping with the property will add the most value. But these won’t cost a few thousand. So keep your savings safe (and tax free in an ISA) and then instead of saving more, overpay your mortgage each month (if you can do so without paying a penalty) by as much as you can afford to clear your mortgage as quickly as you can. For example, overpay £100 a month on £100k mortgage at 4.5pc and you will repay your loan six years early and save over £18k in interest.

Source: http://www.telegraph.co.uk/sponsored/property/first-time-buyer-mortgages/expert-advice/9630663/paying-mortgage-advice.html

Shineyhappy · 4 November 2012 at 5:33PM

This is quite an interesting thread.

DH is very frugal and has owned property since he was 18 but didnt op until I showed him the mortgage calculators showing the difference between interest saved op and interest he was earning on his savings. I only found out about this website because of a poster on the BBC website many ears ago. I try to be as frugal as I can but DH likes some of the finer things in life and doesnt like parting with his savings so he did need some convincing to start with.

We want to get this cleared asap now and then have some luxury fun and nice cars etc.

I dont think I know of anyone else apart from on MSE who would ever spend more than they need to on mortgages and when I talk about it everyone has a reason why it wouldnt be right for them but it is up to them as its their money and they can spend it or waste it how they like.

joe_mcclaine · 8 November 2012 at 2:08PM

I don't know of anyone else overpaying their mortgage.

My kid brother laughed at me when the interest rates dropped and he suddenly found himself with lots of disposable income. I shrugged and told him I'd knocked 10 years off my mortgage and owe less than £6k while he's in an identical house owing nearly £100k and with 20 years to push.

No-one at work has ever considered this option either and they spend huge chunks of their day moaning about how long they will have to work in order to retire.

On the face of it, they are all much weathier than me, living in big houses in nice areas, driving nice new motors and taking three holidays abroad each year while I have my holidays in Skegness, drive a £300 BMW and my modest house is on an old pit estate ... but guess who will be retiring at 55?

pawlala · 31 December 2012 at 11:15AM

Is It Time To Overpay Your Mortgage?

Paying off the mortgage early is something that most borrowers would welcome especially as the mortgage is usually the single biggest outgoing. Recent research from the Council of Mortgage Lenders (CML) suggests that a growing number of borrowers are taking action to try and reduce their mortgage debt more rapidly. It found that around 2.3 million borrowers have made overpayments between 2005 and 2012 amounting to an estimated total sum of £31billion.

Although the number of borrowers paying more than their required monthly payment has not substantially increased overall, it found that there are differing behaviours depending on the profile of the borrower.

Those that took their mortgage in 2008 or 2009 are significantly more likely to have overpaid and those with variable rates, such as Base rate tracker mortgages, are more likely to have made overpayments. They are the borrowers that perhaps enjoyed some of the biggest falls in monthly payments when Bank of England Base Rate fell to its current record low of 0.50%. By maintaining their payments at a higher level than required, they have been able to erode the capital balance of their mortgage more rapidly. Fixed rate borrowers on the other hand saw no improvement in their monthly payments and so are far less likely to have made overpayments.

Read more: http://blog.lcplc.co.uk/2012/12/is-it-time-to-overpay-your-mortgage/

pawlala · 11 February 2013 at 7:17PM

I decided to hijack my own thread to add the following poll:

How long were you on the property ladder before you began to plan your overpaying?

bodmil · 11 February 2013 at 7:21PM

..................

kansaskitty · 11 February 2013 at 7:28PM

Wow a very interesting thread! Thanks for bumping and adding the poll OP.

I have just voted (0-2 years) as we have begun overpaying 18mths after buying our first home. We are hoping to stay here for a long, long time (in our early 20s- long, long time meaning we'll have our children here).

I didn't know about overpaying and how much it would save us until I started reading MFW boards on here. And I had been on this forum for a long time reading DFW boards (no debt, just nosey and my parents had debt so I found it interesting!) and thought MFW sounded like a crazy pipe dream, read a bit more about it, and now we have cut our term from 33.5 yrs left to 15 years left!

NPowerUser · 26 February 2013 at 8:32PM

These threads are a great help, everyone can overpay something at some point, just by adjusting spending.

I walk to the shops, it saves on fuel.

I get Iceland to deliver my weekly shop for free. Milk at £1 for 4 pints and Warburtons bread at £1 a loaf, cheap eggs. Bags of appleas & pears for £1. Super range of frozen foods (not ready meals) for most families, just a bit lacking in the fresh veg dept.

Restrict posh nosh or eating out to a maximum of once a month. My son might be happy giving Dominos £20 for 2 pizzas but I can get the same from Iceland for less than a fiver.

Haggle everything from broadband to sky to insurances.

Bulk buy weetabix and shredded wheat when on offer. Works out far cheaper than the small boxed kiddies cereals. Cheap porridge oats are also delicious and keep you fuller for longer.

Loads of suggestions on these boards. Everyone can save at least a few pound a week off their mortgage, I'm convinced of it.

Good luck everyone.

hildosaver · 27 February 2013 at 2:12PM

This has been an interesting thread to read!

My own situation is not ideal but I'm doing my best to overpay out of it. I live in Northern ireland, which as you may know has seen an incredible drop in house prices - as a result my house is now worth around £95k but sadly for me I owed £121k on it (£26k neg equity

). I had always intended to overpay the mortgage but I was unable to do this for the first 3 years of the mortgage (started 2009) because it was fixed at an interest rate that made my payments just about bareable.

Once I got onto the SVR 6 months ago I have been overpaying as much as I possibly can (getting married helped as it's freed up a bit of disposable income with joint salaries). I now owe £116k (ish) and in the 6 months of overpaying I am now on the same level at which I would have been in June 2014 without overpayments

I have calculated conservatively that by Christmas 2013 the amount owed should hit £110k mark and then Christmas 2014 should hit the magic £100k mark. My hope is that the market here stabalises and perhaps will start to creep upwards in the next 2 years (no guarantees) so with a bit of luck I should have overpayed out of negative equity within 2 years of this point which is my immediate target.

kkgree1 · 27 February 2013 at 4:31PM

I agree that this is a really interesting thread and it does all come down to circumstances and mindset of the individual paying the mortgage.

In 1999 I bought my first property (shared ownership) with the help of my parents. I had a interest only mortgage for 32.k which was 3 and a bit times my salary and was the maxiumum amount the bank would lend me. The interest rate at the time was 7%. In order to live on my then 10k salary I had to get a lodger and the thought of overpaying didn't enter my mind. When my now husband moved in in 2006 he was keen to overpay the mortgage and we reduced it by 10k in 12 months.

We moved into our current home in November 2010 with a mortgage of 136k on a 2.5% lifetime tracker. With the help of a small inheritance (which other people may have blown on holidays and home improvements) we've reduced the mortgage to 39k and are currently overpaying by 1.1k per month. We should be MF by 2015 hopefully.

We don't know many friends of a similar age (mid thirties) who are overpaying and it does worry me that many may get caught when rates rise. I was one of the few that bought in my early twenties so know interest rates of 7%. Most people we know think 5% and less is normal!

Are we in a small minority?

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